In all CPC campaigns there are creative side, which includes writing ads, doing keyword research and similar “art” things, and “nerdy” side, which has a lot of math in it. Important part of this is bid optimization. As it can be put into formulas, it can be automated and there are many automation solutions on the market. But many Adwords advertisers, especially small ones, still use old good human bid optimization. So what are basic bid optimization strategies for CPC campaigns? Main principles are applied to any search engine, although Google will have more metrics and analytics opportunities than Yandex or Baidu.

Keep in mind your goals and budget

Most simple bid optimization goal is to get as much as possible relevant clicks within specified budget. This goal is of limited value, as it does not take ROI into consideration, but it might be useful if main goal of the campaign is branding, as well as if for some reason there is no conversion tracking in the campaign, or if deals are normally done offline and there are a lot of cross-channel lead generation. In such cases it might be difficult to attribute leads to correct channels.

Similar goals, but more rare, are getting as much impressions as possible within specified budget, getting as much clicks as possible with specified keywords, keep CPC within some limits, or showing ads on the highest possible position. Al these goals require some “math” to determine right bids.

Bids up or bids down?

Sometimes it is pretty straightforward, if the bids should be increased. For example, if you don’t meet your monthly budget, average position for your ads is low, and you don’t have strict  limits on CPC (within reasonable terms), all of these are indicators that it is time for higher bids. But while doing this, take into consideration the following:

• Impression share – this is one of the most important KPI for bid optimization. If a lot of IS is lost due to ad rank, normally it can be improved by raising bids or improving quality score.
• Keywords which are below first page bid – getting on first page of search results will normally significantly increase number of impressions and clicks, as well as IS, so if you have a lot of keywords where you can only add couple of cents to get to the first page, you should probably do it.
• Low quality keywords – normally you need to pay quite a lot to get them on high position. Sometimes you will need to bid really high just to get them on the first page. So ask yourself, are these keywords really so important to pay for them that much? Of course, if you track conversions, you can clearly see which keywords bring you profit and sometimes bad quality keywords can be very profitable, so you may want to pay a lot for them.

Bids down – clicks up?

Is that possible that by decreasing bids, you get more clicks? One indicator has high IS lost to budget. This means that campaign has high potential, but is limited by daily budget, so the ad is shown only every second time for relevant queries. What happens if the bids are lowered? Part of the lost IS due to budget moves to lost IS due to rank, campaign still is limited by budget, but potential is smaller. Basically daily spend is the same as before, but CPC is lower, so… you get more clicks for the same money! So in this case, if the budget cannot be increased, lower the bids or pause keywords, ad groups or geographical regions with high CPC. Normally, if your spend is limited by daily budget and a lot of IS is lost due to budget, you are overspending for clicks.

Bidding for better ROI

Nowadays pure bid optimization, without taking ROI into account is rare. And this is natural, high ROI means profitable campaigns. Bid optimization for ROI (conversions, e-commerce transactions etc.) uses all techniques described above, but focuses not on clicks, impressions or IS, but on sales, ROI.

Optimizing bids for ROI, first cost-per-conversion goal needs to be determined – which level you would like it to be and what is the highest border, after campaign becomes unprofitable. The following has to be taken into consideration:

• Keywords with no conversions – remove
• Keywords with some conversions and high cost-per-conversion – lower bids
• Keywords with some conversions and low cost-per-conversion – increase bids
• Keywords with many conversions and decent cost-per-conversion – don’t touch them, let them work!

And last, all bid optimization and especially conversion optimization needs reliable statistical data, so if there are only a few clicks and conversions, it is very tricky to make informed decisions. For example, if it took a campaign to spend 5 EUR to get the first conversion it might take another 100 EUR to get the second one.

Bid optimization is a pretty “nerdy” thing and it requires a lot of analysis and calculation. So make sure your SEM team or agency has not only “artists” in ad creating and keyword research, but also “nerds” who can see through numbers and find right patterns. This can help you to get the most of your SEM campaigns and spend your budgets wisely.